New Law Prevents Double Taxation

Pennsylvania Gov. Tom Wolf signed Act 18 of 2018 on May 4, 2018, relieving the potential for double taxation on the local income of Pennsylvania residents. The Pennsylvania Institute of Certified Public Accountants (PICPA) advocated for this reform of local income tax collection.

The new law benefits many taxpayers who may live in one taxing jurisdiction but work in another. Many were victims of double taxation of certain income. Act 18 of 2018 amends several items within Act 32 of 2008, which brought sweeping changes to how Pennsylvania collects local earned income taxes. While Act 32 made the collection process simpler across the state, an unintended consequence of that law allowed some collectors to limit local credit provisions, thus resulting in some Pennsylvania residents being taxed twice on the same income. Act 18 of 2018 prevents this practice and makes collection more uniformed across the state. It also prohibits penalties against those with no income who do not file a local tax return, and provides clarification of withholding tax rates for employees who are on a temporary assignment outside their usual tax jurisdiction.

Act 18 of 2018, which takes effect July 3, 2018, also includes a provision adding limited oversight of the tax collection system by the Department of Community and Economic Development and a prohibition on the assessment of any earned income tax imposed more than five years after the date on which the tax should have been filed (except in cases of fraud).

The PICPA worked with Pennsylvania Rep. George Dunbar (R-Westmoreland) on House Bill 866, which passed both the House and Senate by wide bipartisan margins of 189-0 and 44-6, respectively, earlier this year. (article originated from the PICPA and edited)